Examining the economic impacts of new casinos

Nearly a dozen developers and casino operators are looking to win a downstate casino license by the end of the year, but it’s unclear whether those winnings will economically benefit the communities surrounding those casinos.

All 11 bidders say their project will help the city and its residents economically, through jobs creation and bringing spending to the surrounding community.

“What my research indicates is that casinos don’t add to the economy of a city – in fact, in recessionary times, they subtract from the economy,” said Jonathan Krutz, professor emeritus at Boise State University College of Business and Economics. “The revenue going into casinos, by and large, comes locally, so it’s not benefiting local businesses, it’s taking away from local businesses, and the money casinos depend on comes primarily from people who are addicted.”

Despite what developers say about their proposals, economists aren’t convinced that casinos benefit urban communities. In fact, some say that Las Vegas’ success is the exception.

Research suggests casinos aren’t the jobs driver they’re thought to be. The thousands of construction jobs end once the casino is built. Krutz said the permanent jobs are often low-paying and can be unfulfilling to some, since they are based on collecting losses from customers.

“The economic benefit comes when they’re hiring people that are unemployed,” Ursinus College professor of business and economics Andrew Economopoulos said. “If they’re hiring people that already are employed, that’s only switching from one working firm to another working firm.”

Casinos may have a bigger impact in rural areas that are lacking in other entertainment options, Economopoulos and others have found.

Casino bidders say their proposals will drive tourism and spending in communities through the “spillover effect,” but casinos are designed to keep customers spending money for as long as possible, dissuading guests from leaving and spending money at nearby entertainment and businesses. Counteracting the spillover effect is the “substitution effect,” which means that for some people gambling spending replaces spending in other areas of their life.

“How can that be good for the businesses that are currently depending on the spending of New York citizens?” Krutz said. “If it’s going into a slot machine, it’s not going into their business.”

Economic growth comes from when outside people come and spend money at the casino who otherwise wouldn’t have spent money in the city on anything else. In New York, the concern is generating new tourism on top of the tourists already coming here. To simply divert existing tourists’ spending from other businesses to the casinos would only benefit the casinos.

“There’s a lot of utopian thinking about a casino being a great benefit to the coffers of the state and local businesses, but there’s a lot of questions still open there,” Economopoulos said.